This document summarizes a presentation on a study about the influence of top management team diversity on the performance of regional banks in Indonesia. The study examines how characteristics like the average age and level of education diversity of top managers impact the performance of 24 regional banks over 2007-2011. Hypotheses are that higher average age and greater education diversity will positively influence bank performance. The methodology section indicates a deductive approach was used, analyzing 184 top managers across the banks based on annual report data to test the hypotheses.

1. THE INFLUENCE OF THE TOP MANAGEMENT TEAM
DIVERSITY ON INDONESIA REGIONAL
BANK DEVELOPMENT PERFORMANCE
Joy Elly Tulung
PhDStudentSKEMABusinessSchool
LecturerSamRatulangiUniversityManado
www.joytia1999.com
International Conference for Emerging Markets
Business Sustainability and Technology Innovation:
Opportunities and Challenges
22 – 23 January 2015

2. OUTLINE PRESENTATION
INTRODUCTION
LITERATURE REVIEW
METHODOLOGY
RESULTS
CONCLUSION

3. Introduction

4. Introduction
There
are
so
many
issues
in
the
business
sector
in
Indonesia
that
are
interes3ng
to
inves3gate,
one
of
them
is
top
management
team
Hambrick
and
Mason
(1984),
Hambrick
(2007
)
Finkelstein
and
Hambrick
(1996).
They
noted
that
between
1984
and
1996,
there
were
more
than
two
hundred
studies
on
upper
echelons
theory
published
in
several
major
journals
all
over
the
world
Indonesia
is
a
big
country
–
the
biggest
archipelago
in
the
world
and
the
15th
largest
area
in
the
world,
as
well
as
the
fourth
highest
number
of
popula3on
with
more
than
237
million
people
(BPS,
2010).
U n f o r t u n a t e l y ,
there
have
not
been
numerous
s c i e n 3 fi c
p u b l i c a 3 o n s ,
n e i t h e r
i n
i n t e r n a 3 o n a l
j o u r n a l s
n o r
accredited
journals,
that
discuss
top
management
team
in
Indonesia.

5. ResearchQuestion
Whether
the
diversity
in
top
management
team
influences
the
comWany
performance,
especially
in
banking,
and
more
specifically
in
Bank
Pembangunan
Daerah
(BPD)
in
Indonesia.

6. Two - tier
Indonesia
adopts
a
two-­‐?er
system,
which
separates
board
of
directors
and
board
of
commissioners
On
one
hand,
the
board
of
directors
(hereaCer
is
called
top
management
team)
is
in
charge
of
opera?ng
the
company,
and
on
the
other
hand,
board
of
commissioners
is
in
charge
of
monitoring
the
board
of
directors
in
organizing
the
company.
Private Companies
In
private
companies,
it
has
been
the
tendency
to
appoint
the
family
member
of
the
company
owner
and
several
professional
people,
as
well
as
the
employees
that
are
considered
brilliant
and
are
appropriate
to
be
included
in
the
top
management
team.
BusinessEliteinIndonesia
SOE
in
the
State-­‐Owned
Enterprises,
the
appointment
of
the
board
of
directors
and
the
board
of
commissioners
is
influenced
by
the
government,
which
is
represented
by
the
minister
of
State-­‐Owned
Enterprise.
Thus,
the
minister
can
appoint
the
professionals
from
outside
the
company
or
officials
from
within
the
company.

7. RegionalBankDevelopment(BPD)
There
are
26
BPDs
in
34
provinces
in
Indonesia
At
the
end
of
2011,
the
assets
of
all
BPDs
in
Indonesia
reached
305
trillion
rupiahs,
or
in
the
fourth
place
in
Indonesia
aCer
Mandiri
Bank
(493
trillion),
BRI
(456
trillion),
and
BCA
(378
trillion)
(www.infobanknews.com)
There
has
been
very
liYle
aYen?on
given
to
this
bank.
More
research
on
banking
conducted
in
Indonesia
was
mainly
about
other
issues
in
other
banks,
such
as
private
banks
and
State-­‐
Owned
Enterprises
bank
The
issue
on
the
top
management
team
is
seen
to
be
interes?ng
from
the
poli?cal
point
of
view.
That
is,
it
has
been
a
public
secret
that
to
enter
the
top
management
team
in
BPD,
the
applicant
has
t o
h a v e
c l o s e
connec?on
with
the
local
government

8. Literature Review

9. The
Age
of
Top
Management
Team
Pegels
and
Yang
(2000:
697)
stated
that
a
senior
manager
tends
to
avoid
any
risk
(Vroom
and
Pahl,
1971),
while
a
young
manager
tends
to
run
aCer
something
risky,
and
takes
an
innova?ve
strategy.
Level
of
Educa3on
Dahlin
et
al
(2005)
found
that
the
diversity
in
educa?on
on
TMT
posi?vely
influences
the
range
and
the
depth
of
the
informa?on
used;
meanwhile,
this
may
influence
the
informa?on
combina?on
nega?vely.
LITERATURE REVIEW
Defini3on
of
Top
Management
Team
TMT
is
defined
as
those
who
are
in
the
upper
?er
in
an
organiza?on
(Hambrick
and
Mason
1984).
The
poten?al
members
of
TMT
are
CEO
or
chief
execu?ve,
president
of
the
commissioner,
financial
director,
opera?onal
director,
and
so
on.
These
individuals
are
the
major
execu?ves
in
an
organiza?on,
each
of
which
provides
instruc?ons
and
direc?ves
on
an
important
decision

10. Hypothesis
H1:
average
age
in
the
top
management
team
has
posi2ve
effect
towards
the
performance
of
BPD.
H2:
The
diversity
of
level
of
educa2on
at
top
management
team
will
posi2vely
influence
the
performance
of
BPD.

11. Methodology

12. METHODOLOGY
In
this
research,
the
researcher
used
deduc3ve
method
as
the
methodological
approach.
A
deduc3ve
approach
needs
conceptual
development
and
previous
theore3cal
structure,
and
is
examined
using
empirical
observa3on
(Gill
and
Johnson,
2002).
Samples
• 24
out
of
26
BPDs
in
Indonesia
were
used
as
samples
and
data
were
taken
from
2007
to
2011.
They
were
obtained
from
the
annual
report
provided
by
each
website
of
each
BPD.
• 184
members
of
TMT.
The
members
consisted
of
the
board
of
commissioners
and
the
board
of
directors
Performance
• CAR
• ROA
• ROE

13. Bialas
and
Solek
(2010),
CAR
was
first
legalized
as
the
measuring
instrument
of
banking
health
in
July
1988
by
Basel
CommiYee
on
Banking
S u p e r v i s i o n
u n d e r
t h e
guidance
of
Peter
Cook,
thus
making
it
named
Cook
Ra?o.
A
bank
is
considered
in
good
condi?on
if
the
CAR
value
is
above
8%.
ROA
is
chosen
because
it
shows
the
ability
of
the
bank
performance
and
it
also
measures
the
effec?veness
of
the
company
in
geeng
the
income
from
the
asset
management.
The
higher
the
ROA,
the
beYer
performance
the
bank
has.
This
is
due
to
the
bigger
reimbursement
and
thereby
the
company
assets
may
develop
(Dendawijaya,
2001:
120)
ROE
is
employed
because
it
is
a
ra?o
between
net
income
and
equity
(Bodie
et
al,
2002).
In
other
words,
if
the
ROE
value
of
a
company
is
high,
there
will
be
more
profits
and
may
have
posi?ve
influence
towards
stock
price.
ROE
has
commonly
used
to
measure
the
performance
of
the
company’s
financial
condi?on
(Certo
et
al,
2006).

14. Results

15. Results

16. Level of Education
High School 1 (0.5%)
Bachelor 67 (36.4%)
Master 92 (50%)
Doctor 20 (10.9 %)
Background
Banking 126 (68.5%)
Non Banking 50 (27.2%)
Government 37 (20.1%)
Non Government 140
(76.1%)
Age
40 – 49 = 32 ( 17.4% )
50 – 59 = 109 ( 59.2 % )
60 < = 38 ( 20.7 % )
Gender
Male 180 (97.8%)
Female 4 (2.2 %) .
Characteristics of TMT in BPD

17. The Development of CAR value of BPD
in 2007-2011
23.29
19.99
19.64
17.74
16.66
0
5
10
15
20
25
2007
2008
2009
2010
2011

18. The development of ROA in BPD in 2007
– 2011.
3.06
3.56
3.32
4.15
3.44
0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
2007
2008
2009
2010
2011

19. The development of ROE of BPD in
2007-2011
25.7
27.39
27.13
31.83
28.05
0
5
10
15
20
25
30
35
2007
2008
2009
2010
2011

20. the
rela?on
between
the
level
of
educa?on
with
the
company
performance
shows
an
insignificant
value
of
CAR
(0.53)
and
ROA
(0.24),
but
the
rela?on
of
the
level
of
educa?on
and
the
company
performance
reaches
a
significant
value
of
ROE,
that
is
0.04.
Therefore,
since
one
of
the
two
variables
which
are
used
to
measure
the
performance
of
BPD,
those
are
CAR
and
ROA,
are
not
significant,
H2
is
rejected.
.
the
average
age
does
not
influence
the
performance
of
TMT
in
BPD
in
Indonesia.
This
can
be
seen
from
the
value
of
CAR
(0.59),
ROA
(0.77),
and
ROE
(0.92).
This
is
not
significant
since
the
significant
value
is
0>0.05.
Given
this
result,
the
H1
is
rejected

21. Conclusion

22. The Age of Top
Management
Team
(Vroom
and
Pahl,
1971),
while
a
young
manager
t e n d s
t o
r u n
a ] e r
something
risky,
and
takes
an
innova3ve
strategy.
average
age
in
the
top
management
team
has
posi3ve
effect
towards
the
performance
of
BPD
Pegels
and
Yang
(2000:
697)
stated
that
a
senior
manager
tends
to
avoid
any
risk
This
research
shows
that
the
average
age
of
TMT
members
and
the
diversity
of
the
level
of
educa?on
of
TMT
members
do
not
influence
the
performance
of
BPD.
It
is
contradictory
to
the
research
conducted
by
Mayr
(2011)
and
HiY
and
Tyler
(1991)
who
found
that
the
average
age
of
TMT
significantly
influenced
the
company
performance.
The
present
research
supports
other
findings
from
other
researchers
such
as
Tihanyl
et
al
(2000),
Wiersma
and
Bantel
(1992),
and
Child
(1974),
sta?ng
that
the
average
age
of
TMT
does
not
influence
the
company
performance

23. Bachelor
67 TMTs
10.9%
Master
92 TMTs
50%
Doctor
20 TMTs
36.4%
The
rela?onship
between
the
level
of
educa?on
of
TMT
members
and
the
performance
of
BPD
is
not
insignificant.
This
is
different
with
the
research
conducted
by
Bantel
and
Jackson
(1992)
who
found
that
the
level
of
educa?on
influenced
the
company
performance.
However,
this
present
research
supports
the
research
conducted
by
Tulung
(2009)
who
found
that
the
level
of
educa?on
of
TMT
does
not
significantly
influence
the
company
performance.
LevelofEducation

24. Limitation
data
validity
and
reliability.
Because
of
the
limited
?me,
the
researcher
did
not
conduct
construct
validity
and
reliability.
The
independent
variables
of
this
research,
those
are
age
and
the
level
of
educa?on,
are
insufficient
to
see
the
variety
of
TMT
and
the
rela?onship
with
the
performance
of
BPD.
Data
Secondary
data
collected
were
not
enough
to
measure
the
performance
of
BPD.
Again,
due
to
the
limited
?me
and
place,
the
researcher
did
not
conduct
any
observa?on,
survey,
ques?onnaire,
or
interview.
.
Those
methods
may
help
to
find
more
variety
of
TMT
in
BPD
and
also
to
see
the
strategy
of
making
appropriate
decision
for
BPD.
.
Limitation

25. Managerial Effect
These
results
become
significant
input
for
TMT
of
BPD
that
even
though
the
diversity
of
level
of
educa?on
and
the
average
age
do
not
influence
the
performance
of
BPD,
they
cannot
be
avoided,
and
that
there
may
be
other
characteris?cs
that
were
not
analyzed
in
the
present
research
that
may
have
posi?ve
effects
towards
the
company
performance,
such
as
gender,
background
of
educa?on,
background
of
occupa?on,
or
the
rela?on
with
the
company.

26. Suggestion for the Next Research
other
characteris?cs
such
as
gender,
background
of
occupa?on,
or
the
rela?onship
with
the
government.
Since
the
secondary
data
collected
were
not
enough
to
measure
the
variety
and
the
performance
of
BPD,
it
is
suggested
that
the
next
research
employ
several
methods
such
as
observa?on,
survey,
ques?onnaire,
or
interview.
It
is
also
interes?ng
to
relate
the
poli?cal
connec?on
of
the
TMT
members
with
the
government.
Such
research
can
support
the
present
researcher
and
the
next
researchers
to
find
more
gaps
within
the
strategy
and
especially
on
the
topic
of
top
management
team.

27. Thanks
Discussion